Buyout multiples: Europe (down), US (up)

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April 3, 2021

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Digging into why buyout multiples are diverging in Europe and the US

Lofty valuations have long been touted as a prominent headwind to private equity returns, since multiple expansion is one of the biggest drivers of performance.

When GPs buy companies at heightened valuations, the margin for error becomes extremely thin, especially in volatile and uncertain environments. The dislocation caused by the pandemic had many believe buyout valuations would finally fall to more reasonable levels, as seen during the global financial crisis.

But, in the capricious year of 2020, valuations overall remained elevated and varied greatly by region.

The gap between European and US prices has never been wider

Our latest research shows that European prices dipped to a seven-year low while US valuations accelerated to a new high, due in part to Europe's poor public equity performance, considerably lower fiscal-monetary stimuli, and a steeper flight to pandemic-proof assets in the US that came with a substantial COVID-19 premium.

These factors point to an outsized opportunity in European buyouts over the next year.

That said, due to continued fiscal-monetary support, an expanded and favorable opportunity set, accessible high-yield debt markets, and record European PE dry powder, we expect European valuations to track higher during the next 12 months as investors look through the uneven recovery.

Download our analysis into buyout multiples in Europe and the US

Feel free to email me or our institutional research team with any feedback or questions.

Kind regards,

Dominick Mondesir
Analyst, EMEA Private Capital

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Thematic Research

Value-Based Care Drives Tech Opportunities

Healthcare costs are soaring in the US—with spending estimated at $4 trillion in 2020 and forecast to reach $6.2 trillion by 2028, according to analyst Kaia Colban.

Insurers, employers and providers are increasingly recognizing that fee-for-service models may not be sustainable. And Medicare is accelerating the adoption of new technologies and payment models.

One approach is value-based care, which directly links earnings to care quality instead of quantity:

read the note

Biotech Went to Work as the World Stayed Home

The biotech industry was already growing rapidly leading up to 2020, both in terms of capital raised and drug development.

The pandemic only hastened those trends, writes analyst Joshua Chao, leading to record-setting VC dealmaking and blockbuster IPO activity last year.

Reliance on biotech to get the world back to normal has been a substantial tailwind for many companies:

read the note

Webinars & Events

Save the date for these upcoming engagements:

April 14: Join our analysts as we cover the latest developments in the wild world of SPACs and why electric vehicle startups have been popular targets. Register here.
April 22: How big is sustainability tech? Senior analyst Alex Frederick will discuss the intersection of tech with climate, food, agriculture and the supply chain. Details here.

Deal Commentary

Mobility tech analyst Asad Hussain weighs in on Lilium's $3.3 billion merger deal with a SPAC led by former General Motors executive Barry Engle:

"This is the third SPAC debut for an electric vertical take-off and landing (eVTOL) air taxi developer, following Joby Aviation and Archer Aviation.

"We forecast the global air taxi passenger mobility market to grow from a burgeoning $1.5 billion in revenue in 2025 to $150.9 billion in revenue in 2035.

"eVTOL aircraft have major operating cost advantages over helicopters and could make passenger air mobility affordable to the masses.

"With more than 600 employees, Lilium is the largest eVTOL developer by employee count, drawing experienced engineers from the automobile and aerospace industries. Lilium's aircraft, the Lilium Jet, seats seven people and is expected to offer a 155-mile range and a cruise speed of 175 mph.

"In addition to manufacturing aircraft, Lilium expects to launch its own regional air mobility service in 2024.

"Although the company's technology shows promise, it has yet to be validated by significant testing, let alone certification. Notably, its ducted fan approach requires significant power draw, especially during takeoff and landing, which could be beyond the performance limitations of current-generation batteries.

"As such, Lilium could require next-generation battery architectures—which will take several years to become widely available—to begin significant testing and make progress in the multiyear certification process.

"Additionally, we think Lilium needs to secure a major automobile or aerospace partner to successfully manufacture at scale."

Asad Hussain

Senior Emerging Tech Analyst
Mobility Tech

In the News

A sample of our insights recently featured in the press:

As demand for fintech has exploded, analyst Robert Le and PitchBook data supplement a thorough look into how VC-backed fintech companies have shaken up Wall Street and garnered massive valuations. [New York Times]

Which cybersecurity companies have raised the most money since the start of 2020? Analyst Brendan Burke helped curate the list, while also explaining what's driving the industry's increase in mega-deals. [Business Insider]

What's the fallout from Deliveroo's disappointing debut? Analyst Nalin Patel discusses the setback in the context of the broader UK tech scene and startups looking to go public. [Reuters]

If you're a media member interested in interviewing our analysts, contact our PR team.

ICYMI

Highlights from our research content published over the past few months:

Market updates

Thematic research

Emerging Technology Research deep dives

Coming next week (subject to change)

US PE Firm Style Drift (sneak peek here)
AI Opportunities in Foodtech
The Air Taxi Startup Handbook

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